Appeal from an order of the County Court of Rockland County (John A. Gallucci, J.), entered June 30, 1967, which denied a motion by plaintiff for summary judgment.

Howard T. Hogan, P. J. Concur -- Glickman and Pittoni, JJ.

Author: Hogan

This action was brought to recover the sum of $969.90, predicated upon an alleged conversion of an automobile upon which plaintiff claimed a security interest in the form of a financing statement.

The essential facts are not in dispute. On March 25, 1966 one Sheila Hardy of 162 Hempstead Road, Spring Valley, borrowed $800 from plaintiff for the stated purpose of purchasing a 1959 Cadillac automobile bearing serial number 59 KO 91331. To obtain the loan she executed and delivered a promissory note for $969.90 payable to plaintiff and a security agreement (chattel mortgage) on the automobile, naming plaintiff as the secured party.

Three days later, on March 28, plaintiff filed a financing statement in the Rockland County Clerk's office pursuant to section 9-302 (subd. [1], par. [d]) and section 9-403 (subd. [4]) of the Uniform Commercial Code. These sections require, respectively, that such statement must be filed by the secured party to perfect his security interest in a motor vehicle required to be licensed or registered in this State (§ 9-302, subd. [1], par. [d]), and that a financing statement shall be indexed according to the name of the debtor (§ 9-403, subd. [4]).

Thereafter, on April 23, 1966 one Shirley M. Rook, the then owner of the automobile, also of 162 Hempstead Road, Spring Valley, and who, according to appellant's brief is Sheila Hardy's mother-in-law, transferred the Cadillac to defendant. At the time of this transfer the automobile was registered in the name of Shirley M. Rook. Prior to such transfer plaintiff had not received any payment on the debt for which the Cadillac was security. Upon learning of the transfer, plaintiff brought this action in conversion against the transferee.

Plaintiff's motion for summary judgment is bottomed on the fact that a financing statement was filed on March 28, 1966, by virtue of which defendant had at least constructive notice of plaintiff's security interest in the vehicle when defendant became the transferee from Shirley Rook on April 23, 1966. Defendant contends that the financing statement is of no effect as constructive notice due to its failure to meet the statutory requirements of a financing statement. The court below, in denying plaintiff's motion, held that the filed statement was ineffectual as to a buyer without actual notice of the security interest because of plaintiff's failure to indicate on the financing statement that it was being filed in accordance with the security agreement signed by the debtor (Sheila Hardy)authorizing such filing without her signature thereon.

Since the determination of this controversy necessarily hinges on the validity or invalidity of the financing statement, a careful perusal of its contents is required.

Examination of a copy of the filed financing statement discloses a minor misspelling of the name "Sheila". Further, and of far more significance with respect to this litigation, is the absence of any information under item number 10. This item sets forth the reason why the debtor's signature does not appear on the statement itself and is required to be completed by marking an "x" in the appropriate box. The central issue presented for our determination therefore is -- What effect is to be given the failure of a secured party to provide this information?

Although a financing statement is usually signed by both the debtor and the secured party (§ 9-402, subd. [1]), such statement is sufficient when signed only by the secured party, provided that it otherwise complies with that subsection and is filed to perfect a security interest in any one of three classes of property (§ 9-402, subd. [2]). One such class is collateral under a security agreement signed by the debtor and authorizing the secured party to file a financing statement (§ 9-402, subd. [2], par. [c]). However, the latter subsection specifically requires that "Such a financing statement must state that it is filed in accordance with a security agreement signed by the debtor and authorizing the filing of the statement". (Emphasis supplied; see Bank of North America v. Bank of Nutley, 94 N. J. Super. 220.) It is important that we keep this clear statutory mandate in mind if the events in this case are to be viewed in proper perspective.

Since the code itself furnishes no criteria by which the gravity of an omission such as the one at bar may be determined, it is necessary to refer to collateral sources, such as the Official Comments, in order to ascertain the extent to which the legislators may have considered the missing information indispensable.

Superficially, it may perhaps be argued that marking an "x" in a box is a mere mechanical act which, if not performed, is inconsequential. But upon all the facts herein, such a conclusion seems to be unwarranted. Perforce the statute (§ 9-402, subd. [2], par. [c]), the "x" in effect represents the debtor's signature. Surely, the significance to be accorded a signature is not to be reduced when, for reasons of facility, it is represented by an "x". Only by equating this mark with the debtor's signature may we properly gauge the intention of the legislators.

The Official Comment to section 9-402 (McKinney's Cons. Laws of N. Y., Book 62 1/2, Uniform Commercial Code) states that the reason for dispensing with the debtor's signature is to prevent the secured party from being penalized by the debtor's actions when a timely filing is required. This might occur when the debtor has moved or disposed of the collateral fraudulently or without authorization and is reluctant or hostile with respect to signing a financing statement. This dispensation does not, however, allow the secured party to improve his position where he has failed to indicate on the financing statement the reason for the filing without the signature. The Comment further emphasizes the importance of providing the required information by paraphrasing the statutory mandate: "Financing statements filed under this subsection must explain the circumstances under which they are filed". (McKinney's, supra.)

It is therefore quite apparent that the code contemplates a dispensation of the normal bilateral signature requirement for the sole purpose of facility, and that the reason for the dispensation must be ...

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